Timing & trends

Can 5G Work for Me?

Many projects and ideas have been thrown off schedule with the Covid-19 pandemic, but progress is being made on implementing the latest cellular phone network – the fifth generation, euphemistically known as 5G. As well as the global pandemic, there are other concerns of a geo-political nature to be addressed, such as which countries will allow and trust Huawei equipment on the front end, or anywhere else in their 5G infrastructure. Everyone wants to have their data SECURE and kept out of foreign government hands, but allegations…Click for full article.

Schachter’s Eye on Energy – Nov. 12th

Euphoria over the Pfizer announcement of a vaccine cure rallied crude over $US5/b in recent days. With the vaccine unlikely to be readily available until late Q2/21 and corona case loads rising sharply, this crude rally is overdone. Josef sees WTI having over US$10/b of downside over the next few months.

Each week Josef Schachter will give you his insights into global events, price forecasts and the fundamentals of the energy sector. Josef offers a twice monthly Black Gold newsletter covering the general energy market and 27 energy and energy service companies with regular updates. He holds quarterly subscriber webinars and provides Action BUY and SELL Alerts for paid subscribers. Learn more and subscribe

EIA Weekly Data:. The EIA data on Thursday November 12th (delayed one day due to Veterans Day) showed commercial stocks rising by 4.3Mb versus a forecast of a decline of 0.9Mb. Gasoline inventories fell by 2.3Mb while distillates fell by 5.4Mb as cold weather hit parts of the US. US crude production held steady at 10.5Mb. The surprises were in consumption which rose significantly. Total demand rose by 1.8Mb/d to 20.2Mb/d, Gasoline demand rose 426Kb/d to 8.78Mb/d and Jet Fuel saw consumption grow by 420Kb/d to 1.33Mb/d (the best level since the pandemic hit).

Refinery Runs fell 0.8 points to 74.5% from 75.3% in the prior week. Commercial stocks remain high at 39.7Mb or 8.8% above last year’s level of 449.0Mb. Total stocks (excluding the SPR) remain high at 96.2Mb above last year or 7.6% above the 1.269Bb in storage at this time last year. Cushing oil inventories fell 500Kb to 60.4Mb compared to 46.5Mb last year at this time.

OPEC Monthly Report: The OPEC report for October was released yesterday. They have lowered their forecast for demand as the recent rise in coronavirus cases in Europe and North America derail their prior view of demand. In Q4/20 they had a world demand forecast of 94.86Mb/d and have lowered this now to 93.67Mb/d. They have also lowered forecasts for three of the quarters in 2021. Q1/21 was lowered to 94.96Mb/d from 95.43Mb/d. All of 2021 was lowered to 96.26Mb/d from 96.84Mb/d. European demand seems to be down by nearly 1.2Mb/d from last year, Japan by 340Kb/d, and the US by 1.3Mb/d. Only China is showing growth, with consumption up 220Kb/d to 13.19Mb/d in September.

Baker Hughes Rig Data: Last week Friday the Baker Hughes Rig Survey showed an increase in the US land rig count. The US rig count rose by four rigs (up nine rigs in the prior week) to 300 rigs working, but remains down 63% from 817 rigs working a year ago. The Permian saw the largest increase at five rigs (nine in the prior week) to 147 rigs. The Permian rig count remains 64% below a year ago’s level of 412 rigs. The US oil rig count rose by five rigs (up 10 rigs last week) to 226 rigs, but is down 67% from 684 rigs working last year.

Canada saw no change in rigs this week (three the prior week) to 86 rigs working. The rig increase now has activity down only 39% from a year ago when 140 rigs were working. In the breakdown the most encouraging data point was rigs working for natural gas which was at 49 rigs up from 43 rigs working last year. This is the first positive year over year comparison in any of the Baker Hughes data. Natural gas stocks in Canada have performed better than oily names during the last few months.

Natural gas prices are very profitable for producers now with AECO at $2.83/mcf, with NYMEX at US$3.03/mcf. We expect much higher prices once the depths of winter arrive next month. US Gulf Coast LNG exports have recovered and booked cargoes should be at record shipment levels before year end. This bodes well for winter 2020-2021 and thereafter. Natural gas is our commodity of choice at this time. 

Conclusion: As we write this, WTI for December is at $41.68/b up from $US$38.51/b last week as the market liked today’s EIA report which showed a significant rise in demand and the past few days’ response to the Pfizer vaccine announcement on Monday.

Positives for crude prices:

  • The announcement on Monday of a vaccine with 95% effectiveness by Pfizer lifted spirits as there now is a road in 2021 back to normalcy and an expectation that energy demand will recover in 2H/21. Cruising stocks, airlines and economic sensitive stocks rose sharply while the stay at home stocks saw profit taking. Crude prices rose over US$4 earlier this week on the vaccine news.
  • OPEC is talking about not bringing back on 2Mb/d of shut-in production in January as they are wary of weakening crude oil demand while economies face rising Covid-19 caseloads and increasing lockdowns.
  • Winter is coming and demand usually rises worldwide by 1.5-2.0Mb/d.

Negatives for crude prices:

  • Germany, UK, France, Italy, Russia and Austria are reporting record increases in Covid case loads. The Czech Republic has the worst outbreak in Europe and is in lockdown once again. Ireland has initiated a six week lockdown across the country to halt the disease. Red Zones are occuring all across Canada and total lockdowns are likely in some of these extremely stressed areas. Hospitals and ICU beds are full in many of these areas forcing a more intense approach to getting the virus contained. Tracing is becoming tougher to do in many countries. The more lockdowns occur the lower consumption of crude oil and its products.
  • In most US states the number of new cases has increased to a record high of 144K per day and now over 10.4M total cases. Many states have hospitals that are maxed out on their ICU beds. Patients are being taken to other in-state hospitals or to hospitals in  nearby states. Almost 242K deaths have occured in the US out of 1.29M around the world. If people don’t take adequate protection during the upcoming Thanksgiving holiday season the US case-load and death rate may explode in the coming months.
  • Libya is getting its production up sharply now that the civil war is over. In September OPEC had them producing 454K/d and they are now at over 1.0Mb/d. By year end they expect to be producing around 1.3Mb/d. This will mean over a 1.0Mb/d increase in production in just three months as they produced only 104Kb/d in August.

OPEC has its next meeting scheduled for December 1st. We expect them to delay the next planned increase in production for one to two quarters which should help to lower the excess stock levels. We expect crude prices to retreat below US$40/b as it becomes clear that the vaccine will not be readily available by Pfizer (or other vaccine candidates once approved by the FDA) until Q2/21 at the earliest for all who want to take it. Near term we see the crude price ranging between US$36-44/b. However if lockdowns pick up in the US and Canada and Europe extends theirs in high case load areas, we see crude falling further. Our downside forecast for WTI crude oil remains for it to fall into the US$28-32/b range over the next few months. We remind readers that WTI fell to a low at the end of October of US$33.64/b.

Most energy and energy service stocks have significant downside risk. The most vulnerable companies are energy and energy service companies with high debt loads, high operating costs, declining production, current balance sheet debt maturities of some materiality within the next 12 months and those that produce heavier crude barrels. Results for Q3/20 have started and will continue through the end of November. So far the results have been weak,  especially for the oily names and service stocks. The one positive is that some companies have announced financing support from BDC and EDC and that the paperwork is being completed. This will remove the stigma of survival concern for the entities able to complete the deals with these entities and their bank syndicates.

Hold cash and remain patient for the next low risk BUY window expected during tax loss selling season during Q4/20. 

Energy Stock Market: The S&P/TSX Energy Index has fallen from the June high at 96.07 to the current level today of 77.41 (last week it was at 67.51). It reached 80.54 on Tuesday of this week as the euphoria of a vaccine lifted the sector. However the index is still down by 14% in four months when we recommended profit taking. We expect energy and energy service stocks to roll over shortly and recommence their descent.

The S&P/TSX Energy Index should fall below the low at 60.38 (the low in early October) in the coming weeks as tax loss selling commences. We expect to see a very attractive BUY signal generated during early to mid-December tax loss season and expect to recommend new ideas as well as highlight our favourite Table Pounding BUYS, which should trade at much lower levels than currently. Our initial downside target is for the S&P/TSX Energy Index to fall below 50 in the coming weeks.

Please consider becoming subscribers before our November 26th webinar as we will be discussing the best ideas to invest in during the upcoming tax loss selling season. In addition during the 90 minute webinar we will discuss the third quarter results (those that did well and those that did not perform) of the 27 companies we cover. 

Subscribe to the Schachter Energy Report and receive access to our two monthly reports, all archived Webinars, Action Alerts, TOP PICK recommendations when the next BUY signal occurs, as well as our Quality Scoring System review of the 27 companies that we cover. We go over the markets in much more detail and highlight individual companies in our reports. If you are interested in the energy industry this should be of interest to you.

Tomorrow we will release our November Interim report. We reviewed the companies that reported Q3/20 results before our research cut-off of Friday November 6th. The report will also include an update of our Insider Trading Report and our analysis.

To get access to our research go to  https://bit.ly/34iKcRt to subscribe.


New Listings Double Sales Totals for the 6th Straight Month

The newly active listings in September set another all-time high with over 3200 properties going up for sale. This marks the 6th straight month that newly active condos have doubled the sales totals. The oddity is the sales were loudly spoken of, but the new inventory was whispered. Prices were able to inch up despite a majority of the areas inside of the Greater Vancouver condo market off double digit percentage points, with 2 outliers being off 50%+ from their individual market peak’s.

Prices have come down from the peak by 7%. The surprising part of this data point is, when you take the current data of the 19 regions which make up Greater Vancouver, there are 12 regions down 10%+ from their individual peaks. Of those 12, 5 of them are off 40%+.  Understandably the Real Estate Boards recorded data kicks out an outlier or two to give accurate data. It is just surprising that the data indicates only a 7% drop from peak.

The data does have room to run higher before testing the possible downtrend. There could be room for some unusual price activity during the remaining portion of 2020 and into 2021. As those presale completions close. They will inevitably come to the market to be resold. Many will experience losses, some getting out by the skin of their teeth, and the fortunate will walk away with profits.

Technically speaking the downtrend indicated by the yellow line has never been tested since the inception, coupled with a second test to break above the upper echelon channel. The first attempt during March failed.

The preceding two years had clearly an up and down effect on prices. 2018 achieved peak prices with an average sales price of $751,632. 2019 prices fell more than $100,000 from the highs in 2018. Currently the 2020 prices are $50,000 higher than the low in 2019. The probably scenario is the market is creating lower highs coupled with lower lows which will see the market bottom occur during 2022.

Those presold condos could affect the data in a unique way over the short term. Presale prices do not count towards the MLS monthly average sale price data. Meaning those high valued, small square footage properties will be calculated into the average sales price for the first time. Even as the majority of sellers will lose based on their original purchase price, carrying costs, commissions, the high average sales price could bump the data higher, possibly even as high as the previous peak due to the artificially added value of high valued product newly added into the data metrics. If this does occur, this will likely be a temporary head fake. The growing need to sell has already pushed inventory to the highest levels in the past 5 years. Look at the price chart and the last time inventory was above 7000 actives, price action was very volatile, and could not propel beyond the technical price range. This is what will continue to occur over the upcoming 2021 and 2022 as inventory grows with the need to sell intensifying.

As mentioned active listings are at their highest point in the past 5 years. The seasonal norms, will likely take hold, but given that it is 2020 anything is possible. Due to the lockdowns during the spring the normal activity has been pushed back to later months. September ended with 6279 available condo listings.

The market has continued its record breaking ways again in September with over 3250 brand new listings on the market. Again seasonal norms should take hold, however over the upcoming two years the market is likely to experience 8000+ active listings, with a high probability of 9000 available units which would be an all-time high for Greater Vancouver.

The cannibalization of the market will begin after the majority of presales have completed. Once that occurs and inventory is 8000+, any unit in an older building will have very little chance of selling. The new warranties that come with the new buildings, along with the lower insurance fees, and just the overall new penny effect, will cause older units to be left with very little ammo in the chambers other than lowering their asking prices. This will ripple to the newer units, and the chase lower will have begun.

Sales did finally come through higher sales compared to the past 3 years. Which has had some perennial real estate bulls very excited. But only if you compare the data directly with past September’s. Not when you compare it to previous high water marks of any calendar year. The 1598 sales which took place in September did break out of the stagnant sales range, however when compared with previous years high water data points the sub 1600 sales is hardly anything to write home about, let alone be the headline. Add on the fact that there was the highest availability in 5 years and the newly active listings has doubled the sales for 6 months running. Eventually there will be a straw that breaks the condo’s back.

Dane Eitel, Eitel Insights
604 813-1418

Watch Eitel Insight’s latest video here:

What Will Armstrong’s Model Forecast?

Martin Armstrong, September, 2020
“The model is calling for a major change in the markets beginning on January 18th with a panic cycle in the last week of February. The model calls for a short term bottom on March, 23rd.”
All of which came true, if you want to know what the Armstrong model is forecasting now – Marty will appear on MoneyTalks, Saturday morning, Oct 3rd, 8:30 to 10:00 PDT. LISTEN LIVE

Understanding Real Estate Cycles

Real Estate cycles exist and matter. Eitel Insights identifies those cycles, and correctly identified the Greater Vancouver market peak during 2017. Eitel Insights’ technical forecasts have been so precise that in 11 Great Vancouver markets the actual data has matched forecasted data with over 95% accuracy. An additional 7 markets have realized over 80% of forecasted losses with likely more to come. Dane Eitel will join Michael this Saturday, September 19th to talk Real Estate cycles in both the detached and condo markets.
Saturday Sept 19th  8:30am – 10:00am Pacific

Make no mistake—this is a stock market bubble.

The Stock Market Bubble —and How to Play It

Every stock market bubble begins with a story, and make no mistake—this is a stock market bubble.

The story began easily enough, if not with “once upon a time.” A virus forced the country to shut down and accelerated the gains in a select few technology stocks that are uniquely capable of thriving with everyone stuck at home. A central bank took quick action to prevent financial markets from seizing up, pushing interest rates about as low as they could go. That helped lift the stocks of companies that are growing, including chiefly the aforementioned tech stocks, even if some have no profits. These stocks were among the first to rally once the stock market bottomed in March.

Now, get ready for the plot twist: Good investment ideas can stop being good ideas if the story goes on for too long. The tech trade—including tech companies that aren’t officially labeled as such—went too far before correcting suddenly in the past two weeks.

After gaining 75.7% from its March 23 low through Sept. 2, the tech-led Nasdaq Composite fell 10%, to 10,847.69, over three trading days, its swiftest correction on record.

But one correction doesn’t mean that the story is over, or that the bubble is ready to burst. To the contrary, the forces that drove stocks such as Apple (ticker: AAPL) and Amazon.com (AMZN) to astonishing heights remain firmly in place. They include the companies’ continued growth, the Federal Reserve’s determination to do whatever it takes to keep the economy afloat, retail investors’ newfound interest in trading, and maybe even a bit of fiscal largess. Stocks will remain volatile, but the tech bubble will continue to inflate.

For an investment bubble to occur, there has to be a widespread belief that a new paradigm has taken hold requiring an adjustment in valuations far beyond what previous fundamentals would imply. This belief needs to engage the imagination of investors beyond Wall Street, and there must be plenty of capital available to chase stock prices higher. The Covid-19 crisis has unlocked all three prerequisites.

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